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Brokers’ community proposes revision in ‘new broker regime’

Brokers’ community proposes revision in ‘new broker regime’

KARACHI: The Stock Market Reforms Committee, set up by the Securities and Exchange Commission of Pakistan (SECP) to prepare ‘New Brokers Regime’ (NBR), said that SECP did not fully implement its recommendations and some of the quantitative and qualitative criteria have been diluted to accommodate some practical concerns of the market participants, said a Committee’s statement here on Tuesday.

It said, “we are extremely pleased to note that the SECP has now notified the regime of stock market brokers. However, it seems some of the quantitative and qualitative criteria have been diluted to accommodate some practical concerns of the market participants. We sincerely hope that our recommendations will be fully implemented in due course.”

The SECP had formed a Stock Market Reforms Committee in September 2019. The objective of this Committee was to review and improve the current situation of the stock market. The SECP formed the Committee with senior market professionals from securities brokers, PSX, NCCPL, CDC, banks and mutual fund industry.

After in-depth analysis and scrutiny, the Committee submitted a number of recommendations to the SECP including revising the novel concept of a ‘New Broker Regime’ which was undertaken by SECP some years back but was not pursued.

The statement said that key objectives of the new regime are addressing the protection of equity market participants and improving transparency and compliance regarding custody of client assets. The new regime aims to improve compliance standards in the industry and bring Pakistan in line with best international practices and specially with reference to anti-money laundering laws as custody of client assets would only be retained by financially sound brokers and clearing members.

Pakistan’s market capitalization to GDP currently stands at a paltry 17%, significantly lower than regional players such as India (90%) and Malaysia (135%).

One reason for lower penetration in Pakistan’s equity market is quite clearly the fact that the general public is often suspicious of the stock market due to the actions of a few that often receive undue spotlight. Then the same paintbrush is used to smear the entire brokerage industry. The stock market crises of the last twenty years have also cemented the view of a highly speculative market with inadequate safeguards for retail investors.

As a result, our stock market investor base has remained extremely low with only two hundred and fifty thousand accounts with the Central Depository Company. Our regional peers have an enviable record to their credit, it added.

In view of the above, a three-tier broker model was proposed by an overwhelming majority based on both quantitative and qualitative criteria:

1. Trading and Clearing Member
2. Trading and Self Clearing Member
3. Trading Only Member

The committee comprised senior market professionals including Najam Ali (Convener), Ali Ansari, Ali Sultan, Badiuddin Akbar, Farid Alam, Kamran Nasir, Mohammad Sohail, Muhammad Lukman, Shahid Ali Habib, Rafique Umer, and Yasir Qadri.

The Committee are confident that the new regime will usher in a new era for our stock market. Pakistan has an outstanding capital market infrastructure but the brokerage industry was not structured and regulated as per best international practices.

The committee continues to encourage and support SECP to improve governance and compliance standards of the local brokerage industry, especially in the on-going global pressure of increasing transparency and documentation. It said we not only encourage steps taken by SECP that enhance investor protection, but also emphasize focus on the industry’s core competence of trading and investment advice.